IOC may not pass on post-APM gains -- To add `value' to retail outlets

Balaji C. Mouli

NEW DELHI, April 2

INDIAN Oil Corporation (IOC) is not likely to reduce the consumer price of petrol, diesel, kerosene and LPG due to gains realised from the dismantling of the administered pricing mechanism (APM). Instead, it would plough the gains into value-added services at the retail outlets, according to a senior company official.

"Dismantling of the APM will give us the freedom to determine the returns on each of cost elements in the product chain. For instance, in the case of tankage (storage) costs, all the petro-marketing companies were reimbursed a normative 12 per cent post-tax return on such asset," the official said. "One of the reasons for adopting this approach is that we would not like our brand equity to suffer."

IOC expects competition among oil marketing companies on the pricing of diesel for bulk customers. "We expect this to happen in the next six to seven months when discounts on volume purchases on a long-term basis will be offered," the official said.

Bulk customers account for around 25 per cent of diesel sale, with the remaining finding its way into the retail segment.

On the firming up of crude prices in the international markets, a senior Indian Oil Corporation (IOC) official said that the products currently being retailed by IOC had been produced from crude procured in February-end and March-beginning. During February, the Indian basket for crude purchased in February was $19.58 per barrel. This rose to a shade over $23 per barrel for the month of March. The current consumer prices of petrol, diesel, kerosene and LPG were set at a crude price level of around $20 per barrel.

According to company estimates, if the crude price hovers around $24-25 per barrel and the retail prices are not revised, IOC will suffer a loss of around Rs 50 crore per month.

In this context, the company has requested the Government for a reduction in the excise duty on diesel or allow it to raise the consumer prices. The Government holds around 82 per cent stake in Indian Oil Corporation.